* Fears of Washington gridlock support bids for bonds * Benchmark Treasury yields hover near 10-week lows * Fed minutes hint openness for more bond purchases * U.S. retail sales fall, 1st time in three months By Richard Leong NEW YORK, Nov 14 (Reuters) - Most U.S. government debt prices held steady on Wednesday as investors clung to their safe-haven bond holdings on anxiety over whether a protracted gridlock in Washington could cause a federal budget crisis that would send the economy reeling. The Treasuries market also recovered from early losses after minutes of the Federal Reserve policy meeting in October, in which a number of Fed officials reckoned the central bank would need to ramp up its bond purchases to help the economy. President Barack Obama, who was re-elected last week, pressed for his proposal to have the wealthy pay more in taxes as a means to help reduce the budget deficit. Top Republican lawmakers on the other hand have been steadfast in pushing to hold down tax rates for top earners. If the White House and a divided Congress do not produce a deal on the federal budget before year-end, a series of automatic tax hikes and spending cuts, known as the "fiscal cliff," are set to phase in early in 2013. Fears of going off the fiscal cliff have spurred selling on Wall Street and buying in Treasuries, whose yields hovered near 10-week lows. Obama "is not saying anything to assure the market that going off the fiscal cliff won't happen," said Carl Lantz, chief U.S. interest rate strategist at Credit Suisse in New York. Lantz and other analysts said a budget deal is possible. "I am of the opinion the (Obama) administration and Congress will prevent a fiscal-cliff disaster from occurring," said Wilmer Stith, co-portfolio manager of the Wilmington Broad Market Bond Fund in Baltimore. Until a budget compromise is reached, investors preferred the safety of U.S. Treasuries over stocks, with the Standard & Poor's 500 index down 3.8 percent over the past five trading days. Ten-year Treasury notes traded up 2/32 in price to yield 1.589 percent, down 0.6 basis point from Tuesday's close. They erased an early loss of 12/32 with a yield of 1.633 percent as a result of profit-taking. The 10-year yield touched 1.57 percent on Tuesday, which was the lowest in 10 weeks. The share of investors who said on Tuesday they were "long" U.S. government debt, or holding Treasuries more than their portfolio benchmarks, rose to 26 percent from 17 percent the prior week, J.P. Morgan Securities said in its weekly Treasury client survey. This was the highest level of long investors since July 23. While uncertainty over the U.S. budget talks and lingering anxiety about Europe's debt crisis stoked safety bids for Treasuries, the release of the record on the Fed's last policy meeting was also favorable for bonds. The minutes showed top Fed officials believe the third round of large-scaled bond purchases, dubbed QE3, has helped support a sluggish U.S. economy. They also showed a number of them thought the central bank would need to buy more bonds when its "Operation Twist" expires at year-end. "The minutes suggest they will likely add to QE3 with the expiry of the Twist," Credit Suisse's Lantz said. Operation Twist involves the Fed selling short-dated Treasuries it owns and buying $45 billion in longer-dated Treasuries each month. With QE3, the U.S. central bank has been purchasing $40 billion in mortgage-backed securities each month in a bid to bolster the housing market and lower unemployment. Jobs have remained tough to find for many Americans, whose consumer spending accounts for two-thirds of the U.S. economy. The government reported on Wednesday that retail sales fell 0.3 percent in October, the first monthly decline since June, due partly to superstorm Sandy that pummeled the U.S. Northeast.